Asian bond spreads widen to three-week high

Asian bond spreads widened to their highest in three weeks on Monday as weak US consumer confidence soured investor appetite for riskier assets, while supply concerns haunted Philippine sovereign bonds. Philippine dollar bonds weakened to two-week lows after government officials said foreign debt issues may reach almost $2.08 billion next year, up from an earlier estimate of $1.5 billion.
The Asia ex-Japan iTraxx investment-grade index widened 8 basis points (bps) to 137/145, traders said, its highest since July 24. The index has widened by nearly 20 bps since hitting 13-month lows on July 31. "The Asian credit market is following the trend in equities markets, which are mostly in the red. The weak US consumer sentiment has cast a gloom over the outlook on the economy," a Hong Kong-based analyst said.
The Reuters/University of Michigan Surveys of Consumers said its preliminary reading of the index of confidence fell to 63.5 in early August from 66.0 in July, dragged down by concerns about scarce jobs and falling incomes. Unlike US or Japanese government debt, most Asian bonds are seen as riskier assets that benefit from improved risk appetite. But overall market sentiment on Asian credits remained positive, fuelled by expectations that the region will emerge from recession ahead of the United States and Europe, traders said.
"The market has been very choppy lately, depending on data releases from the US," a Singapore-based trader said. "We are still seeing some flows and in the next two to three months, we expect bond spreads to tighten further." Philippine bonds fell for a second day, with the country's 8.375 percent debt due in 2019 trading at 115.75/116.25 cents on the dollar, Manila-based traders said, its lowest since July 30. The debt closed at 116.00/116.75 on Friday.
The Philippines, one of Asia's frequent debt issuers, has sold $2.25 billion of global bonds so far this year and some traders said the government would likely tap the dollar market by year end to help fund next year's budget. There were no trades on the country's five-year credit default swap (CDS), last seen at 185/190 on Friday, traders said. South Korea's five-year CDS widened by 8 bps to 144/150, tracking the broader market, traders said.